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CIRCULAR

Guiding the order, procedures for, and financial handling of, activities of purchasing, selling, transferring, receiving and handling outstanding debts and assets of enterprises

Pursuant to the Government's Decree No. 77/2003/ND-CP of July 1, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Government's Decree No. 69/2002/ND-CP of July 12, 2002, on management and handling of outstanding debts of state companies;

Pursuant to the Government's Decree No. 187/2004/ND-CP of November 16, 2004, on the transformation of state companies into joint-stock companies;

Pursuant to the Government's Decree No. 80/2005/ND-CP of June 22, 2005, on assignment, sale, business contracting and lease of state companies;

Pursuant to the Prime Minister's Decision No. 109/2003/QD-TTg of June 5, 2003, on the establishment of the company for purchase and sale of enterprises' outstanding debts and assets;

The Ministry of Finance hereby guides the order, procedures for, and financial handling of, activities of purchasing, selling, transferring, receiving and handling outstanding debts and assets of enterprises as follows:

Part One

GENERAL PROVISIONS

1. Scope of application: This Circular guides the order, procedures for, and financial handling of, activities of: purchasing, selling and handling outstanding debts and assets between enterprises, economic organizations or individuals and the company for purchase and sale of enterprises' outstanding debts and assets on the principle of agreement; purchasing, selling and handling outstanding debts and assets under the Prime Minister's designation; transferring, receiving and handling debts and assets already excluded from the enterprises' value upon transformation of ownership of state companies.

2. Objects of application:

2.1. The company for purchase and sale of enterprises' outstanding debts and assets, established under the Prime Minister's Decision No. 109/2003/QD-TTg of June 5, 2003 (hereinafter called the debt purchase and sale company for short).

2.2. Enterprises having receivable debts, outstanding assets sold to the debt purchase and sale company;

2.3. Enterprises, organizations and individuals purchasing outstanding debts and assets of the debt purchase and sale company;

2.4. Enterprises, organizations and individuals having payable debts;

2.5. Enterprises and organizations keeping others' debts and/or assets excluded from the enterprises' value upon transformation of ownership of state companies.

3. The terms used in this Circular are construed as follows:

3.1. "Outstanding debts" mean receivable or payable debts which have become overdue but not yet been received or paid.

3.2. "Creditors" mean enterprises, organizations or individuals having receivable debts.

3.3. "Debtors" mean enterprises, organizations or individuals having payable debts.

3.4. "Asset owners" mean enterprises, organizations or individuals having the ownership right over assets.

3.5. "Outstanding assets" mean finished products, supplies, goods and/or fixed assets under the ownership of enterprises, which are left in stock but no longer needed for use by the enterprises.

3.6. "Purchase, sale of outstanding debts, assets" mean the sale by creditors of receivable debts or by owners of outstanding assets to the debt purchase and sale company which, as a result, becomes new creditor of the debtors or new owner of the assets.

3.7. "Purchase, sale of outstanding debts, assets under designation" mean the purchase, sale of outstanding debts, assets under the Prime Minister's designation.

4. The debt purchase and sale company shall be entitled to purchase, sell or handle outstanding debts and assets, including the value of land use rights, at agreed or designations prices; to sell assets pledged or mortgaged for debts which it has purchased, including the value of land use rights, according to current regulations.

5. When their contracts for purchase and sale of outstanding debts and/or assets become effective, the involved parties shall have the following rights and obligations:

- All the rights and obligations of the creditors (the debt sellers), the asset owners (the asset sellers) are transferred to the purchasers.

- The creditors and asset owners shall have to transfer all debts and assets together with the related dossiers and documents in strict accordance with the contracts and current legal provisions, and also to inform the debtors of the change of creditors of the sold debts.

- The purchaser shall inherit all rights and obligations of the creditors towards the purchased debts, have the rights and obligations of asset owners towards the purchased assets.

- The debtors shall have to fulfill the debt payment obligation, supply documents and information related to their debts and fulfill other debt-related obligations towards the debt purchaser in accordance with the provisions of law.

6. For the debts and assets excluded from enterprises' value, after signing the transfer records, the debt purchase and sale company is entitled to inherit all rights and obligations of the creditors towards the received debts; have all the rights and obligations of the asset owners towards the received assets. The debtors shall have to fulfil their debt payment and other obligations towards the debt purchase and sale company.

7. For outstanding debts and assets it has purchased or those assigned by the State to it for handling, the debt purchase and sale company may handle them by the following modes:

- Recovering debts, selling debts, selling or exploiting security assets;

- Selling or leasing outstanding assets;

- Using outstanding debts or assets for contribution of equities, joint-venture and/or business cooperation capital;

- Other modes not banned by law.

The debt purchase and sale company may repair and upgrade outstanding assets so as to raise the efficiency of their handling by the above-said modes.

The order and procedures for handling of outstanding debts and assets as well as the debt purchase and sale company's competence therefor is specified in its Financial Management Regulation.

8. Activities of purchasing and selling outstanding debts and assets must be recorded in writing under current regulations.

9. Purchasers of outstanding debts and/or assets shall have to monitor and account all expenses for debt and/or asset purchase, including prices of purchasing outstanding debts and/or assets as stated in vouchers, asset transportation freights, asset repair and upgrading expenses (if any), and shall monitor the value of debt principals on the out-of-balance sheet accounts.

10. When purchasing outstanding debts and/or assets of the debt purchase and sale company, enterprises and/or economic organizations shall comply with the market prices through negotiation, auction or bidding according to current regulations. The order, procedures for, and financial handling of, the purchased outstanding debts and/or assets shall be the same as those applicable to activities of purchasing and selling outstanding debts and assets agreed upon with the debt purchase and sale company.

11. The debt purchase and sale company shall have to pay taxes in accordance with the current provisions of tax law.

Part Two

SPECIFIC PROVISIONS

I. FOR ACTIVITIES OF PURCHASING, SELLING OUTSTANDING DEBTS AND ASSETS UNDER AGREEMENT

1. Order, procedures for purchasing, selling outstanding debts and assets

1.1. The purchase and sale of outstanding debts and assets shall be effected on the basis of contracts signed between the two parties.

1.2. The purchase and sale of outstanding debts and assets shall comply with market prices by mode of agreement, bidding or auction according to current regulations.

2. Financial handling of debt-purchasing and -selling activities

2.1. For the debt purchase and sale company:

The purchased debts shall be regarded as a special type of goods. The financial handling thereof shall comply with the Financial Management Regulation of the debt purchase and sale company.

2.2. For debt sellers

a/ Where the sold debts are receivable debts which are irrecoverable, have been handled by the creditors under the State's regulations and are being monitored in out-of-balance sheet accounts, the proceeds from the sale of these debts shall be accounted into the seller' other incomes.

b/ Where the sold debts are debts being monitored in the accounting balance sheets, the proceeds from the sale thereof shall not be accounted into the debt sellers' revenues but recorded as decreases in the corresponding receivable amounts. The negative difference between the proceeds from the sale of debts and the value of such debts recorded in the accounting books shall be offset with the following sources in the following order:

- The provision for bad receivables or the risk provision (for credit institutions), the financial provision fund.

- If the provision for bad receivables or the risk provision or the financial provision fund is not enough for offsetting, the deficit shall be accounted into business costs.

+ For state enterprises: In case of accounting it into business costs for 02 (two) consecutive years, if the enterprises suffer from losses and are incapable of offsetting them but do not fall into the cases of dissolution or bankruptcy, they shall compile dossiers to report thereon to competent state bodies for consideration and decision to reduce their state capital in accordance with current regulations.

+ For state enterprises undergoing ownership transformation: In case of accounting the deficit into business costs, if they suffer from losses, their state capital may be subtracted to offset such losses before they are transformed.

2.3. For debtors

After paying all debts, if the actually paid amounts, which are accepted by the debt purchase and sale company, are lower than the value of the debts recorded in accounting books, the difference may be accounted into other incomes.

If the actual value of debts contributed as equities or joint-venture or business cooperation capital, which is accepted by the debt purchase and sale company, is lower than the value of the debts recorded in accounting books, the difference may be accounted into other incomes.

3. Financial handling of activities of purchasing and selling outstanding assets

3.1. For the debt purchase and sale company:

The purchased assets shall be regarded as commodities. The financial handling thereof shall comply with the provisions of the Financial Management Regulation of the debt purchase and sale company.

3.2. For asset sellers being enterprises:

The proceeds from the sale of assets shall be accounted into the enterprises' other incomes. The remaining value of assets stated in accounting books and the sale expenses shall be accounted into other expenses according to current regulations.

II. FOR ACTIVITIES OF PURCHASING AND SELLING OUTSTANDING DEBTS AND ASSETS UNDER DESIGNATION

1. Subjects entitled to sell outstanding debts and assets under designation

1.1. Equitized state companies, in cases where the value of the state capital portions at enterprises is not enough for clearance of accumulated losses and irrecoverable debts or where the value of the state capital portions at enterprises, after being reduced, is not enough to ensure the required state capital level in the new joint-stock companies under the approved plans in compliance with current regulations.

1.2. State enterprises, which need to be maintained with 100% state capital according to the enterprise reorganization, renewal and development schemes approved by the Prime Minister, which, however, suffer from losses, are incapable of paying debts, and have outstanding debts and assets arising due to the following causes:

- Execution of decisions of competent State bodies.

- Changes in the State's mechanisms and policies, which directly affect the enterprises.

- Other objective and force majeure circumstances, such as natural calamities, epidemics.

1.3. Other subjects as decided by the Prime Minister.

2. Mode of outstanding debt and/or asset purchase and sale under designation: The Prime Minister shall designate sellers of outstanding debts and/or assets to the debt purchase and sale company. The purchasers and sellers shall negotiate to reach agreement on selling and purchasing prices of such debts and/or assets.

3. Order and procedures for purchase and sale of debts and assets under designation

3.1. Enterprises having outstanding debts and assets and falling into the subjects defined at Point 1, Section II, Part Two of this Circular shall have to compile dossiers on their outstanding debts and assets, each comprising:

- A report on the handling of outstanding debts and/or assets, clearly stating the reasons for the proposal to sell outstanding debts, assets under designation.

- The efficient business plan approved by a competent authority (for the case specified at Item 1.2, Point 1, Section II, Part Two of this Circular).

- The legal documents and documents related to the outstanding debts and assets.

- The financial statements of the latest three years.

3.2. The dossiers shall be sent to the representatives of owners of the enterprises (ministers, heads of ministerial-level agencies, presidents of People's Committees of the provinces or centrally-run cities, managing boards of state corporations) and the Ministry of Finance.

3.3. Within 45 days as from the date of receiving the dossiers, the representatives of owners of the enterprises shall assume the prime responsibility for, and join the concerned functional bodies in, appraising the purchase and sale conditions under designation and send them to the Finance Minister for decision under authorization of the Prime Minister or submission to the latter for decision.

3.4. The debt purchase and sale company shall have to organize the handling of outstanding debts and assets purchased under designation by mode of agreement, bidding or auction under current regulations.

If any assets purchased under designation need to be repaired or upgraded in order to increase their value and facilitate their handling for capital recovery, the debt purchase and sale company shall repair or upgrade such assets with their own capital. The repair or upgrading of assets shall comply with investment and construction management regulations.

4. Financial handling of activities of purchasing, selling outstanding debts and assets under designation

4.1. For the debt purchase and sale company

a/ The debt purchase and sale company shall use its business capital to pay the sellers under the signed economic contracts;

b/ The value recovered from the outstanding debts and assets already purchased under designation shall be handled like in cases of purchasing and selling outstanding debts and assets under agreement as mentioned at Points 2 and 3, Section I, Part Two of this Circular.

c/ Quarterly, the debt purchase and sale company shall report to the Ministry of Finance on the results of purchase, sale and handling of outstanding debts and assets under designation.

4.2. For enterprises selling outstanding debts and assets

For enterprises selling outstanding debts and assets, the financial handling shall comply with the provisions of Item 2.2, Point 2, Section I, Part Two and Item 3.2, Point 3, Section I, Part Two of this Circular.

4.3. For debtors

For debtors, the financial handling shall comply with the provisions of Item 2.3, Point 2, Section I, Part Two of this Circular.

III. FOR ACTIVITIES OF TRANSFERRING, RECEIVING, HANDLING DEBTS AND ASSETS EXCLUDED FROM THE VALUE OF ENTERPRISES UPON TRANSFORMATION OF OWNERSHIP OF STATE ENTERPRISES

1. Transfer and receipt

1.1. The transferors:

1.1.1. The representatives of owners of debts and assets which have been excluded from the value of enterprises upon transformation of ownership of state companies shall be ministries, ministerial-level agencies, for enterprises attached to ministries; presidents of provincial/municipal People's Committees, for enterprises established under decisions of provincial/municipal People's Committees, and the managing boards of state corporations, for member enterprises of corporations. The representatives of owners may authorize the enterprises which are keeping others' debts and assets to carry out the transfer.

1.1.2. Enterprises undergoing ownership transformation and currently keeping other's debts and assets already excluded from the value of enterprises.

1.2. The recipient is the debt purchase and sale company.

1.3. Contents of debt and asset transfer and receipt

a/ Receivable debts, which include receivables already excluded from the value of an equitized enterprise but not yet handled by the time the decision on valuation of such enterprise is issued.

The transferors shall classify debts according to the following criteria: debts with complete dossiers and existing debtors; debts with incomplete dossiers and non-existing debtors, and transfer all those debts to the debt purchase and sale company.

b/ Assets, which include assets no longer needed by enterprises, unsold assets, assets awaiting liquidation which, by the time of issuance of decisions on value of enterprises, have not yet been handled. Before the transfer, enterprises must classify assets according to the following criteria:

- Salable assets with recoverable value;

- Unsalable assets with unrecoverable value, which should be dismantled or destroyed.

c/ Enterprises must remit to the debt purchase and sale company the proceeds from the handling of outstanding debts and assets which must be transferred under the provisions of Items 1.3 (a) and 1.3 (b), Point 1, Section III, Part Two of this Circular.

2. Transfer and receipt procedures

2.1. The representatives of owners (or authorized persons) shall together with the enterprises currently keeping others' debts and assets already excluded from the enterprises' value or enterprises currently undergoing ownership transformation and having obtained enterprise valuation decisions (referred to collectively as enterprises) shall transfer debts and assets to the debt purchase and sale company.

2.2. The transfer and receipt of debts and assets must be recorded in writing which must be signed by three parties (the representative of the owner, the enterprise and the debt purchase and sale company). The major contents of such a minutes include:

a/ The quantity and value, which are reflected in accounting books, of debts and assets excluded from the enterprise's value, at the time of valuation of the enterprise.

b/ The quantity and value, which are reflected in accounting books, of debts and assets excluded from the enterprise's value and already handled by the enterprise itself in the period from the time of its valuation to the time of announcement of its value.

c/ The quantity and value, which are reflected in accounting books, of debts and assets excluded from the enterprise's value, to be transferred to the debt purchase and sale company at the time of deciding on announcement of the enterprise's value (to be determined as equal (=) to the quantity and value of debts and assets mentioned at Item 2.2 (a), Point 2, Section III, Part Two, minus (-) the quantity and value of debts and assets mentioned at Item 2.2 (b), Point 2, Section III, Part Two of this Circular), which shall be classified into receivable debts with complete dossiers and existing debtors; receivable debts with incomplete dossiers and non-existing debtors; salable assets with recoverable value; and assets with irrecoverable value, to be dismantled or destroyed.

d/ The quantity and value, which are reflected in accounting books, of debts and assets excluded from the enterprise's value, which are actually transferred to the debt purchase and sale company and classified into receivable debts with complete dossiers and existing debtors; receivable debts with incomplete dossiers and non-existing debtors; salable assets with recoverable value; and assets with irrecoverable value, to be dismantled or destroyed.

e/ The difference between the quantity and value, which are reflected in accounting books, of debts and assets to be transferred and those of actually transferred debts and assets (to be determined as equal (=) to the quantity and value of debts and assets mentioned at Item 2.2 (c), Point 2, Section III, Part Two, minus (-) the quantity and value of debts and assets mentioned at Item 2.2 (d), Point 2, Section III, Part Two of this Circular); causes of such difference, including:

- The difference arising from debt and asset handling by the enterprise in the period from the time the decision on its valuation is issued to the time the debt and asset are transferred to the debt purchase and sale company; the actual proceeds from debt and asset handling; the money amount already remitted under regulations and the amount remittable to the debt sale and purchase company.

- The difference arising from losses and other causes (clearly stating the causes for each specific case).

3. Responsibilities of the transferors and the recipients

3.1. The transferors:

3.1.1. The owner-representing agencies: To direct the enterprises to prepare dossiers and documents related to the to be-transferred debts and assets; together with the debt purchase and sale company and the enterprises to work out and implement plans on transfer of all debts and assets not included in the value of enterprises upon ownership transformation; to assume the prime responsibility for handling deficit assets arising before the time of transfer to the debt purchase and sale company according to the State's current regime.

3.1.2. Enterprises: To prepare all relevant dossiers and documents, classify debts and assets according to the provisions of Item 1.3, Point 1, Section III, Part Two of this Circular so as to transfer all debts and assets excluded from their value upon ownership transformation of state companies to the debt purchase and sale company; to continue keeping others' assets at the request of the debt purchase and sale company and take responsibility for paying compensations to the latter for assets lost in the course of keeping; to coordinate with the debt purchase and sale company in handling the transferred assets.

3.1.3. Within 30 days after obtaining decisions on valuation of enterprises, the transferors shall have to transfer all debts and assets already excluded from the enterprises' value (enclosed with related dossiers) to the debt purchase and sale company.

3.2. The recipients:

- To reach agreement with the transferors on the receipt plans.

- To organize the receipt of debts, assets and accompanying dossiers as well as documents, to open accounting books for monitoring outstanding debts and assets they have received.

- To recover debts, handle assets they have received according to the provisions of Point 3.5, Section II, Part Two of this Circular.

- Quarterly, the debt purchase and sale company shall report to the Ministry of Finance on the results of handling of debts and assets they have received.

4. Principles for handling of received outstanding debts and assets upon transfer and receipt

4.1. The revaluation of outstanding debts and assets before handling and sale of outstanding debts (including debt-security assets) shall be conducted by the debt purchase and sale company as follows:

- Hiring an organization with valuation function to valuate assets before handling. As for assets in stock of an enterprise at an address, which has a remaining value of under VND 500 million as reflected in accounting books, before selling, leasing or contributing them as equities, joint-venture or business cooperation capital, the debt purchase and sale company shall valuate them by itself or conduct such valuation through an enterprise or organization with the valuation function.

- Putting assets in stock and debt-security assets on auction. As for assets in stock of an enterprise at an address, which is totally valued at under VND 100 million as shown by valuation results of an agency with the valuation function, the debt purchase and sale company may opt for the sale of assets so as to speed up the recovery of capital and ensure publicity, transparency and efficiency.

- Hiring professional auctioning organizations to put assets on auction or organizing the auction of such assets according to regulations. Enterprises with excluded assets may participate in the auction to purchase them. Where the assets cannot be sold even through auction under legal provisions (no one registers to purchase the assets or wins the auction), the debt purchase and sale company may determine new starting prices to continue with the auction.

4.2. Handling of debts and assets with irrecoverable value

- For irrecoverable debts whose debtors no longer exist or still exist but are incapable of paying debts or debts with incomplete legal dossiers, the debt purchase and sale company shall report thereon to the Ministry of Finance for debt remission.

- For assets with irrecoverable value and to be- destroyed assets, the debt purchase and sale company shall coordinate with the enterprises in organizing their destruction or hire other organizations and individuals to destroy such assets.

5. Financial handling of debts and assets upon their transfer and receipt

5.1. For the debt purchase and sale company

The money amounts collected from the recovery of debts, sale or exploitation of outstanding assets; the outstanding debts and assets received for conversion into equities, joint-venture or business cooperation capital shall be used as follows:

- To cover expenses for repair or upgrading of assets (if any).

- To set aside 20% of the money recovered from debts and assets for the debt purchase and sale company to cover expenses for receipt and management of such debts and assets; to cover valuation and auction expenses (if any); to cover expenses for destruction of to-be destroyed assets with irrecoverable value and to encourage the quick and efficient handling of transferred outstanding debts and assets so as to recover capital for the State.

- To set aside 10% of the money from the recovered debts and assets for payment to the enterprises keeping such assets to cover expenses for asset management and keeping.

- To remit the remainder into the state budget.

5.2. For enterprises: On the basis of the debt and asset transfer minutes, enterprises shall record as decrease the value of the delivered debts and assets. They shall enjoy the money gained from keeping others' assets and joining in selling them as provided for at Point 5.1, Point 5, Section III, Part Two of this Circular.

5.3. For state corporations: When transferring debts and assets excluded from the enterprises' value to the debt purchase and sale company, the owners may account them as capital decreases.

5.4. For debtors: The financial handling shall comply with the provisions of Item 2.3, Point 2, Section I, Part Two of this Circular.

Part Three

ORGANIZATION OF IMPLEMENTATION

This Circular takes effect 15 days after its publication in "CONG BAO" and replaces Circular No. 39/2004/TT-BTC of May 11, 2004.

If facing any problems in the course of implementation, ministries, branches, localities and enterprises should report them to the Ministry of Finance for study and settlement.